Setting a precedent for IVAs and PPI refunds—Green v Wright

UPDATE (1): This case is being appealed. The hearing of the appeal in the Court of Appeal was listed for 18 May 2016 but was vacated. The hearing has now been fixed for 15 November 2016.

UPDATE (2): The Court of Appeal's judgment is due to be handed down on 1 March 2017 at 2pm (see the Court of Appeal's cause list).

UPDATE (3): (March 2017) In its judgment ([2017] EWCA Civ 111), the Court of Appeal has allowed the IVA supervisor's appeal.

To see analysis on this decision, see Lexis®PSL News Analysis:  PPI claims survive completion of IVA for creditors (Green v Wright).

In the first case of its kind, the High Court in Manchester has given some much needed clarity on the issues surrounding the completion of individual voluntary arrangements (IVAs). Kathryn Maclennan, a solicitor at Stephensons Solicitors LLP who acted for the debtor, explains the implications of the judge’s decision.

Original news

James Green (former Supervisor) v James Wright [2015] EWHC 993 (Ch), [2015] All ER (D) 223 (May)

The High Court in Manchester has ruled in favour of the debtor in a dispute over voluntary arrangements. The decision was made on 9 February 2015. The judgment and case citation are not yet available.

What was the background to the case?

I was approached to act for an individual who had entered into an IVA with his creditors. An IVA is a legally binding agreement between an individual and their unsecured creditors. Such agreements normally last for five years and during that period the debtor makes payments they can afford and/or realises assets available. Such payments are made to a supervisor who must be a licensed insolvency practitioner. At the conclusion of the IVA the funds held by the supervisor are distributed by way of dividend to the creditors bound by the IVA and such dividend is accepted by those creditors in full and final settlement of the debt. Any balance is written off.

My client’s IVA had been concluded and some months following that conclusion the former supervisor of the IVA received payments from lenders in respect of PPI claims. My client was concerned these funds could be claimed in this way despite the fact that he had been fully compliant with his IVA and had received his certificate of discharge confirming this.

What were the legal issues that the judge had to decide?

The matter was initially heard in Burnley County Court and then went before His Honour Judge Hodge QC on appeal in the High Court in Manchester. The issues that were under scrutiny were:

  • the trust created by the IVA and whether that trust continued or terminated on the issuing of a certificate of completion when the debtor has complied with all his obligations under the IVA
  • the purpose and effect of a certificate of completion—when this confirms to the debtor and to all creditors that the debtor has no further liability to the creditors bound by the IVA, who is the supervisor to distribute those funds to, even if he can make a claim to post-closure assets?
  • the content of the final report of the supervisor when this confirms that he has ceased to act in that capacity—if he has so ceased to act, is he able to subsequently resurrect that role and give valid receipt for post-closure funds?

Why did these issues arise?

The issues in this case arose as the supervisor had been paid the funds in question without recourse to my client and then sought my client’s agreement to distribute those funds under the terms of the IVA. My client did not provide such agreement so the supervisor sought direction from the court.

What were the main legal arguments put forward?

The main legal arguments put forward on behalf of my client focused on the certificate of completion and the content of the final report. It was accepted by all that this was an all-assets IVA and that such assets were held on trust for the benefit of the IVA creditors. Our position was that such trust ceased on the issuing of the certificate of completion as the IVA specifically stated that all the debtor’s obligations would cease on the issuing of that document. The supervisor took a different view arguing that the trust continued post completion. Further arguments were advanced on the part of the debtor as to the effect of the completion certificate and the fact that this stated he had no further liability—therefore, even if the supervisor could claim the PPI funds, he could not use those funds to pay the creditors within the IVA as the debtor had no remaining liability to them.

What did the judge decide, and why?

The judge upheld the decision of Burnley County Court, finding in favour of the debtor and ordering that the proceeds of the PPI claim be paid to him. Crucial to the decision was documentation confirming the release of the supervisor from his role and cancelling the debtor’s liability to the IVA creditors.

To what extent is this judgment helpful in clarifying the law in this area?

This judgment is very helpful as it really is the first of its kind to address these issues. There has been some guidance available to insolvency practitioners previously but this decision will bring some much needed clarity.

What practical lessons can those advising in this area take away from the case?

There are thousands of IVAs closing each month so this decision will have an impact on the whole insolvency industry, as well as banks and lenders who are paying out on PPI claims and possibly other claims—they need to be sure they are discharging the funds to the right people. This decision will be relevant to individuals who may want to revisit post-completion assets which have been taken by the former supervisor, banks and lenders making payments, and insolvency practitioners who will want to ensure they adopt best practice. I would recommend that such practitioners revisit those cases where certificates of completion have been issued but are being kept ‘open’ pending determination of a PPI claim.

Interviewed by Jenny Rayner.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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What is an individual voluntary arrangement and what does it seek to achieve?

What is the effect of an individual voluntary arrangement?

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First published on LexisPSL Restructuring and Insolvency.

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